Is Australia's housing really unaffordable?

Housing affordability is improving but Australia is still the second most expensive country to buy property, according to a global survey released on Monday.

However, the Australian economist Dr Andrew Wilson criticised the Demographia International Housing Affordability Survey, saying that comparing the Australian housing market to others was like making comparisons with Jupiter.

The ninth annual Demographia survey, which looked at 337 metropolitan markets in seven countries, shows that when it comes to buying property, on a national level, only China is more expensive due to the highly competitive Hong Kong market.

Bottom dollar ... a Detroit house for sale for just $500.

The report says that rising incomes and flat or declining house prices had seen a slight improvement in Australia's affordability. "However, each of the five major markets continues to be severely unaffordable, reflecting vastly overpriced housing," it says.

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The survey uses a methodology called the "median multiple", which is the median house price divided by gross before tax annual median household income to rate a country's housing affordability.

A rating of more than 5.1 is considered "severely unaffordable". Australia scores 5.6.

Not surprisingly, Sydney is the least affordable, with a median multiple of 8.3. Melbourne scores 7.5; Adelaide 6.5, Perth 5.9 and Brisbane 5.8.

Some regional Australian centres also rated highly, with Port Macquarie top of the regional list at 8.6, followed by Coffs Harbour at 8.0 and the Sunshine Coast, also at 8.0.

The survey finds that Sydney is the third most unaffordable major market after Hong Kong and Vancouver in Canada.

Results indicate that the 20 "most affordable" major city markets were in the US. The US also had 20 "moderately unaffordable" major metropolitan markets, while Canada had two and Ireland one.

All of the major cities in Australia and New Zealand were found to be "severely unaffordable".

But compared with other countries, even country areas were considered expensive. "More than three quarters of the markets in Australia were severely unaffordable, while more than 60 per cent of New Zealand markets were severely unaffordable," the report says.

This compares with Canada, where less than 20 per cent of the markets are severely unaffordable. Ireland has no severely unaffordable pockets, with just 10 per cent of the US out of reach.

But Dr Wilson, the senior economist at the Fairfax-owned Australian Property Monitors, questioned the validity of the survey by making world comparisons. "You may as well be comparing the Australian housing market to the one on Jupiter, because they are different animals," he said.

He issued a "please explain" challenge to the authors of the survey.

"If Sydney is so unaffordable, why do we have so much activity in the housing market?

"Why are prices rising?"

Dr Wilson said that unlike the US, Australia had some of the most stringent banking controls in the world.

"If you can't afford it, the banks won't lend you the money," he added.

The economist said that the Australian market had proven itself to be one of the most resilient housing markets in the world. "We're now entering a growth phase after a very modest correction phase," he said.

Dr Wilson said that the reason Sydney was expensive was the shortage of supply, as the Demographia survey identifies.

260 comments

At the moment we have massive inflow of foreign capital but our various governments are still running deficits. Reason why, is we have spent too much on property using borrowed money, so the government has to keep borrowing so that it can hand out money that people can use to pay their mortgages. It will take a while but eventually there will be limits on public debt, and then we will be unable to pay the mortgages.

Commenter

Ken

Location

Date and time

January 21, 2013, 3:09PM

The survey says Sydney median price is $643K and Sydney gross household income is $77K, giving a median multiple of 8.3.

But that $643K figure is the ABS figure for freestanding houses only (doesn't include units, semis, townhouses or terraces). Sydney median dwelling price is really $580K when you include units, semis, townhouses and terraces.

The ABS also says Sydney household income is $88K, not Demographia's 77K.

So Sydney's correct median multiple is really 580/88 = 6.6, not the 8.3 claimed by Demographia.

Most of Demographia's figures are equally shoddy.

Just look up 'Demographia Debunked' for more. These guys have been called out on their shoddy data so many times.

And what's with only comparing Oz with five other countries? There are over 200 countries in the world!

Commenter

Foxy Trollwolf

Location

Australian Property Forum

Date and time

January 21, 2013, 4:09PM

If Sydney, and elsewhere in Australia, is so unaffordable... then why is there so much activity in the housing market - if property is selling - people are buying = they can afford it.

Commenter

Port Jackson

Location

Date and time

January 21, 2013, 4:17PM

"If Sydney, and elsewhere in Australia, is so unaffordable... then why is there so much activity in the housing market - if property is selling - people are buying = they can afford it."

That's like saying "why are there so many poor people in Dubai, there are billions of dollars being made in oil money'".

Commenter

DM

Location

Date and time

January 21, 2013, 4:45PM

@Port Jackson. Um, there isn't 'so much activity in the housing market'. Remember a couple of years ago when auction clearance rates were regularly above 80%? THAT was when there was a lot of activity in the housing market. Since then, clearance rates have barely been about 60% in Melbourne or Sydney.Housing is more unaffordable now. It was even more unaffordable in 2010 but the sad thing is many people who couldn't really afford a house bought one anyway because they were scared it was their last chance. But ponzi schemes only go so far...

Commenter

Tom

Location

Mt Waverley

Date and time

January 21, 2013, 5:01PM

If some whinger cannot afford to buy their dream home in a choice location, then it does not mean that the property market is unaffordable, it only means that the whinger needs to be realistic about buying in an area where they can afford to do so.Look at all the recent apartment lunches in the inner city sydney area, they are sold out like hot pancakes.

he property marketing Sydney is supported by a underlying healthy demand.

Commenter

Regh

Location

Date and time

January 21, 2013, 5:29PM

The data is actualy more likely understating how unaffordable Sydney is. In the UK, if you lived 60km from London, you are considered to be in Essex, a whole other city. In Sydney, we still call people who live 60km from the city (Penrith) "sydneysiders". To get any realistic and reliable data on house prices in sydney we need to rezone the city and eliminate this ridiculous notion of calling Penrith a suburb of Sydney.

Commenter

WestOF Sydney not Western Sydney

Location

Date and time

January 21, 2013, 5:58PM

@Ken - Ah. Yes. The US economic model. Bad choice. But that has been the choice Australians have made over the past 40+ years with only the occasional lapse.

@Regh - 1) Sydney ain't Australia. 2) If there's one thing the last 10 years should have taught us all, it's that the price of any commodity, asset, bond, equity etc does not necessarily equate to it's value. Price is what any fool will pay. Value is directly correlated to the productivity of the investment. So.....how is productivity doing in Oz? Canberra house prices are extreme. I wonder what they're mining there?

Commenter

Fool...

Location

....on the Hill

Date and time

January 21, 2013, 6:42PM

|In the UK, if you lived 60km from London, you are considered to be in Essex, a whole other city.|

In the UK, if you are working in London, you would be very lucky to be living as close as Essex.

In "Sydney", very few people would be living in "Sydney"."Sydney" comprises 38 different local authority areas, as separate as London is from Essex

Commenter

Goresh

Location

Date and time

January 21, 2013, 8:19PM

And government welcomes foreign investors, because they pay tax on the properties.